Author Topic: Investment Opportunity - Yes or No?  (Read 1675 times)

Caymanite

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Investment Opportunity - Yes or No?
« on: February 24, 2014, 07:19:14 PM »
Hello,

I would like to get some advice or comments on a potential multi-family acquisition with 2 partners.  I appreciate the comments and feedback.

Asking price: $2.09m, but I would like to run the numbers at $2.0m
Closing and other costs (10%): $200k...Caribbean island with no annual tax but up-front stamp duty
Expected monthly rent: $17k
Financing at 75% (excluding $200k costs) so $1.5m
Annual mortgage payment assuming 4% over 25 years: $95k
Positive annual cashflow at 75% mortgage assuming 50% rule: $9,600/year
Estimated expenses (for second calculation without 50% rule): $78k ($30k insurance, $25k maintenance, $17k vacancy estimate (1 month), $6k other expenses).  Plan to handle property management as a group and hire out maintenance.
Total return on invested capital seems to be around 318% over 25 years of life of mortgage.
The property is located on a Caribbean island on a canal with about 200ft of dock space with significant expatriates and a healthy financial services industry.

I have included a rough calculation spreadsheet with other basic information.

What would you (serious RE investor) pay for this?  What other information do you need to analyze the transaction?

Thanks for your input!

Fishingmn

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Re: Investment Opportunity - Yes or No?
« Reply #1 on: February 25, 2014, 06:49:57 AM »
I've never done multi family or anything anywhere near that large but my base calculations would be -

$2.2M investment
$17k/mo income
$8,500/mo expenses (50% rule)

Means the cap rate is 4.64% - I usually find deals about double that here in MN on single family

Then if I plug in your loan costs I get an annual Cash on Cash return of .44% - RUN!!

KingCoin

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Re: Investment Opportunity - Yes or No?
« Reply #2 on: February 25, 2014, 01:02:15 PM »
Are you sure you can get a full term mortgage at 4%?

FrugalSpendthrift

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Re: Investment Opportunity - Yes or No?
« Reply #3 on: February 25, 2014, 01:12:22 PM »
..... acquisition with 2 partners.
If you want to cash out after a few years, but the other partners don't.  What happens?

honobob

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Re: Investment Opportunity - Yes or No?
« Reply #4 on: February 25, 2014, 02:17:01 PM »
   What other information do you need to analyze the transaction?


Historic rent growth and appreciation and an educated guess for increase or decrease in the future.  A successful investor will be most interested in these figures.  Why buy a stagnant or decreasing business.  The local market will determine what a serious investor will pay (market value) for the stated income stream.  A MN single family cap rate has NO bearing on this property and it may be hard to get local actual cap rates.  At $2,000,000 it has a GRM of 9.8 .  Pretty mid range number but really only has meaning compared to ACTUAL sales of similar properties in the same area.